BANKING : How RTC Loses Money on S&L; Property : Bailout: A new report says a handful of large investors are snatching up real estate at bargain prices.
The government’s thrift bailout agency reaps an average of 55 cents on the dollar for commercial property it sells from failed savings and loans, according to a new study released Tuesday.
The report also says a handful of large banks and investment firms are snapping up the real estate at bargain-basement prices. In several cases, individuals associated with the major buyers were major contributors to President Bush’s 1988 campaign and other Republican causes.
The study by the Southern Finance Project of Charlotte, N.C., a watchdog group that follows corporate finance, indicates that the government is getting low returns--as little as 36 cents on the dollar for farm land.
The Resolution Trust Corp. says it receives about 66% of the book value of commercial and residential real estate. A separate figure for commercial real estate wasn’t immediately available.
The book value is the estimated value of the properties after they were acquired by the RTC from failed thrifts. Analysts say it is difficult to determine book value in a weak real estate market.
The figures are important because the less RTC receives from selling thrift assets, the more taxpayers have to pay to settle the S&L; mess. Overall, the RTC says it recovers 94 cents per dollar of book value for sales of all assets, which include junk bonds and bank loans. Real estate makes up just 3% of the RTC’s holdings.
RTC spokesman Steve Katsanos defended the agency’s property sales, saying the prices reflect the depressed market. The agency advertises in major newspapers and enlists brokers to drum up interest in the deals.
Other analysts say because of the market’s severe problems, it is too early to say if investors today are cleaning up at taxpayers’ expense.
“It’s really tough to tell if anyone is making a killing. We won’t know until the year 2000,” said Daniel Cowles, associate editor of Thrift Liquidation Alert of Newark, N.J., a newsletter that closely follows the thrift bailout.
The Southern Finance Project report also described concentration among buyers of deposits and franchises of failed thrifts; the top 10 buyers obtained exactly half of all consumer deposits from failed thrifts in single buyer deals.
“The problem, from our perspective, is it’s an insiders’ ballgame,” said Marty Leary, who compiled the study of 1,643 RTC property deals that reaped $2.3 billion. “The whole real estate sale program is little more than a welfare program for banks and well-connected real estate developers.”
One example of concentration is BankAmerica Corp. of San Francisco, the nation’s second-largest banking company, which bought nearly a fifth of all consumer deposits sold by the RTC.
The study said the top buyer of thrift assets was an investment group led by Michael LeBeau, a Northern California real estate developer, which paid $16.89 million, or 25 cents on the dollar, for properties with a book value of $66.77 million.
Other major buyers include General Electric Co.’s real estate subsidiary; Maxxam Inc. of Houston; Lennar Corp. of Miami; Trammell Crow Real Estate Investors of Dallas, and BRW Real Estate Group, a joint venture of Goldman Sachs, the Blackstone Group and J.E. Robert Co.
It said six people affiliated with some of the top 15 asset buyers were major contributors to President Bush in 1988. The Dallas-based Trammell Crow, for example, has donated $306,500 to Republican Party groups since 1988, the study said.
Katsanos denied that the RTC considers a bidder’s politics when awarding contracts, saying only the highest bidders are selected. “We’re a very bottom line organization,” he said.
The study also showed a small number of buyers dominated the property sales. Property sales to the top 20 buyers in Arizona, California, Colorado, Florida and Texas acquired property that totaled 37% of the total book value of all properties surveyed, the study said.
The study vividly described the low prices the RTC receives for property--with a low of 36 cents on the dollar for agricultural land, to the best: industrial parks, which got 75 cents on the dollar.
The Southern Finance Project said it spent more than 20 months filing Freedom of Information Act requests with the RTC for details on the real estate transactions.
